Preliminary results show an industry medical malpractice netcombined ratio of less than 110 for 2004, some 30 points belowcombined ratios posted for 2002 and 2003.

While the 2004 result is based on preliminary information, andwhile it excludes data for one of the largest writers of medicalmalpractice insurance–Lexington Insurance Company–trends revealedby the data indicate a line that is definitely on the road torecovery. Lexington Insurance, a member of American InternationalGroup, was the third largest med mal writer in 2003 based on netpremiums.

The following results based on a review of premiums, losses andexpense information for recent years on a net and direct basis arenoteworthy:

o On a net basis, if loss, premium and expense information forAIG are completely excluded from industry totals for all years, theresulting combined ratio trends are similar to those shown on theaccompanying graph. Excluding AIG, the net combined ratios for 2003and 2004 are 139.3 and 109.6 respectively.

o Excluding premiums for AIG, industry net written premiums roseless than 4 percent in 2004, following two years of double-digitjumps.

o Breaking down combined ratios, on a net basis, the industrypure loss ratio (excluding loss adjustment expenses), which wasnearly 98 in 2001, fell to 84 in 2002 and 2003, and fell more than23 points in 2004 to roughly 61. The loss adjustment expense ratiofell another 6 points, and other underwriting expenses declinedslightly.

o On a direct basis, the industry pure loss ratio fell nearly 17points in 2004, from 81 in 2003 to roughly 64 in 2004.

o Several key states mentioned in the accompanying articleshowed similar loss ratio declines. In Texas, for example, wheredirect written premiums dropped nearly 15 percent in 2004, the lossratio fell more than 35 points.

o Florida insurers posted a 25-point drop in their overalldirect pure loss ratio even as premiums fell nearly 4 percent.

o While direct premiums rose in Illinois and Missouri, andremained flat in Connecticut, direct pure loss ratios dropped inthose three states as well–falling about 18 points in Illinois,nearly 40 points in Missouri, and 13 in Connecticut.

Net data cited for this analysis is from the Insurance ExpenseExhibit of insurer annual statements; direct results are based onstate page information.

Reported by Susanne Sclafane